Do I Need Homeowners Insurance?

Is Homeowners Insurance Required?

Do you need homeowner insurance? If your lender requires it under the terms of your mortgage, then the answer is simple - it's an unequivocal YES. Practically any lender is going to require it, because if you don't have it - and something happens to your house - they incur a huge loss. If you're a renter, your landlord may require you to carry home insurance. But what if you don't have a mortgage, and your landlord is chill with you not being covered? Then homeowners insurance policy is not required, but you'd still be well advised to have it.

Why Insure?

Your homeowners insurance policy protects you against all kinds of loss and liability. Consider the following:

Damage to Your House

You've had a fire. Been hit by lightning. Had a burglary. Found yourself on the wrong end of a hurricane. What do you do now? If you don't have insurance, you suck it up and take a huge financial hit. Your clothing, your appliances, your furniture and other personal belongings could have been destroyed, and you're stuck wondering how in the world you're ever going to be able to afford to replace them.

If you have homeowners insurance, depending on the nature of your homeowners insurance policy, you'll likely be eligible to receive at least 50% of the cost of the lost items - more, depending on the type of home insurance coverage you're carrying. If you have no home insurance coverage at all, then you're going to be on the hook for the full replacement cost of everything you've lost.

Think about it - if your house is worth $200,000, you could recover up to $140,000 to help you replace your possessions and repair the damage.

Liability

You love your dog, don't you? But what if he bites someone? If you're not insured, you could end up having to pay all the medical bills for the person who got bitten, and heaven help you if they sue you for damages due to mental anguish. If you're insured, you're covered, even if the bite is indisputably your dog's fault.

The same goes for other injuries that could occur in your home - say someone slips on a damp floor, or falls on a rotting stair tread. You could be looking at thousands, or even hundreds of thousands, of dollars in compensation. But if you have homeowners insurance policy, you're covered.

Accommodations in the Event of Disaster

If something happens to your house, you're going to have to live somewhere. You might have to go to a hotel, or rent another home. Homeowners insurance will reimburse you for the cost of alternative housing and even pay for your meals. Of course, there will be daily limits, so don't plan on staying at the best hotel in town, but you can at least be assured of regular meals and a roof over your head while you're waiting for your house to be rebuilt or repaired.

What Type of Coverage?

Now that you're convinced you need home insurance coverage, remember that not all coverage is equal. The lower the rate, the lower the coverage, and the higher the rate, the better the home insurance coverage, generally speaking. So, there are three levels:

Actual Cash Value: Covers the house, plus your belongings, based on what they're worth - not how much you paid for them.

Replacement Cost: Actual cash value of your belongings.

Guaranteed Replacement Cost: This is the most comprehensive coverage. It means that it doesn't matter what it costs to replace or rebuild, you're covered, even if it exceeds the limit of your home insurance coverage. This is expensive coverage, though, and there is a limit - usually up to 25% higher than the value of your home insurance policy.

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